Profit Margin vs Markup
By Selling Fee Tools team ·
Margin and markup both describe the gap between what a product costs you and what you sell it for, but they measure it against different things. Mixing them up is one of the most common pricing mistakes.
The formulas
- Profit = price − cost
- Margin = profit ÷ price
- Markup = profit ÷ cost
A product that costs $20 and sells for $50 makes $30 profit: a 60% margin and a 150% markup. Margin can never reach 100%; markup can be any size.
Pricing for a margin
To hit a target margin, divide the cost by (1 − margin):
Price = cost ÷ (1 − margin)
For a 40% margin on a $20 cost: $20 ÷ 0.6 = $33.33. Check: $13.33 profit ÷ $33.33 = 40%.
The common mistake
Adding the margin you want to the cost as a markup gives too low a price. Adding 40% to $20 gives $28, which is only a 28.6% margin. To get a 40% margin you need a 66.7% markup.
Conversion table
| Margin | Same as markup |
|---|---|
| 10% | 11.1% |
| 20% | 25% |
| 25% | 33.3% |
| 30% | 42.9% |
| 40% | 66.7% |
| 50% | 100% |
| 60% | 150% |
Markup = margin ÷ (1 − margin), and margin = markup ÷ (1 + markup).
Which cost to use
Use the landed cost, not the supplier price: product, freight, duty and import fees per unit. And remember that marketplace and payment fees come out of the price too: a 40% margin before fees can be 25% after them. Work out fees per channel with our fee calculators, or use the break-even ROAS calculator for the margin left after fees and before ads.
Tools
- Profit margin calculator: margin, markup or price from any two of price, cost and margin, with a margin ladder
- Landed cost calculator: the real cost per unit of imported goods
- How to price products after fees